The country really can’t afford for universities to contract

Drawing on work commissioned by UCU, Tim Fanning describes the potentially devastating economic impact that would arise from the higher education sector getting smaller.

Universities have been one of the sectors hardest hit by the Covid-19 crisis.

Lockdown measures have had an immediate impact, and there is the prospect of significant losses in the event of falls in international students and other income sources.

The scale of these is uncertain at present, but recent work for UCU concluded there could be a £2.5 billion black hole, and the IFS estimates long-run losses at anywhere between £3 billion and £19 billion.

Although debates have touched on it, there has been less attention so far on the possible wider economic consequences from these types of financial losses, given the growth that has taken place in the sector.

The evidence base on the collective national economic contribution of the HE sector is well established – amounting to £53 billion in GDP and 940,000 jobs by latest estimates. The evidence on universities’ local roles is a little more disparate and sometimes anecdotal.

We have been working with UCU to draw together the existing evidence on local economic contribution at an institutional level and to fill gaps where possible. The focus has been on the quantifiable expenditure-related effects, which are more consistently captured and measured in the literature than dynamic supply side impacts on skills, innovation, inward investment and so on. The review also focuses squarely on economic impacts rather than wider social effects.

These are some of the things that struck us from this review.

Direct employment within universities

It was already known that universities are often important local employers in their own right – in many cases, the largest after the NHS and local authority. To put some numbers on this:

  • Around 20 UK institutions directly employ more than 5,000 people, and ten of these individually account for at least 5% of all jobs in their local authority area (before any multiplier effects).
  • This is, of course, magnified for places that host multiple institutions: e.g. take the two universities in Coventry and Nottingham that, together, employ around 1 in every 14 people who work in those cities.
  • To put this into context in the North East, there are more jobs in higher education than there are in car manufacturing in the region.

These jobs are at a range of skill levels, but, on average, they are high quality and well paid. Average salaries are typically in excess of prevailing local averages. To take an example, the average salary at the University of Sunderland is more than a third higher than the average for all jobs in the city.

Local expenditure effects

Universities bring a wider set of local economic knock-on effects.

They are, typically, large purchasers through their supply chains and some have been taking steps to buy locally where it makes sense. UCLAN, for example, became part of the “Preston Model” on community wealth building, which helped drive increased local procurement.

In many places, universities have played anchor roles in driving major physical developments and regeneration schemes. Over 40 universities have invested more than £100m in capital developments in the past three years.

These may sometimes create shiny new facilities but there are also significant local multiplier effects for the construction industry, and these investments can help to unlock further private sector development. Cambridge University, for example, has invested £800m in the past three years, a sum that is equivalent to around 15% of the city’s annual Gross Value Added.

Often the largest spillover effect comes from students, visitors and their expenditure, much of which flows to local retail, hospitality, culture and entertainment sectors and percolates throughout local economies. On average, a full-time student spends around £11,000 per annum in term time, excluding tuition fees. As a very rough rule of thumb, every 1,000 full-time equivalent students typically support around 75 jobs off-campus locally, and more at the regional level.

Bringing these effects together, it is not unusual for a university to support almost as many jobs in its local area as it does on campus. At a regional level this can rise to 1.5 jobs for every direct job.

Patterns of economic impact

The university sector is spread across the UK, and the nature and scale of these effects varies across institutions and places.

Not surprisingly, historic university towns have a high proportion of university-linked jobs: a study for Oxford University suggested that as many as 29% of all jobs in the city of Oxford could in some way be linked to the university’s presence. St. Andrews’ students make up a third of the population and the university supports over 4,000 jobs.

The same is true of many major cities. More than 23,000 jobs in Manchester are estimated to be sustained by its universities (including nearby Salford University), and 18,000 in Birmingham. Almost 10% of jobs in Liverpool are linked to its five universities.

Even in an economy as large and buoyant as London’s, 1 in 30 jobs can be traced back to its universities. One of the institutions we looked at had a turnover larger than Wembley Stadium, the Royal Opera House and the Tate combined. We found that Queen Mary University in the East End of London employs over half of its staff from East London and neighbouring districts.

Other locations have benefited from the formation and growth of local institutions. A good example is Lincoln, whose university was formed in 1996 with a strategy of helping to drive the social, cultural and economic development of the city. Our study for the university in 2017 found that 1 in 6 working age residents of the city is either a student, a direct employee or has a job indirectly linked to the university. The retention and growth of Siemens, the largest private sector employer in the area, is attributed in large part to the university’s partnership with the company.

Universities and economic recovery

This evidence on universities’ local economic importance implies that those areas hosting institutions vulnerable to contraction could be exposed to a wider economic shock (even before we consider the effect on access to HE, local labour markets, and research and innovation).

From the point of view of the Government’s “levelling up” agenda, places that are lagging behind economically are sometimes especially dependent on their local university. Around two-fifths of all local authority areas with a university have at least 5% of all local jobs linked to their universities. For those whose productivity lags behind the national average by 15% or more, this rises to more than half of local areas. This includes places like Middlesbrough, Plymouth, Stoke-on-Trent and Swansea.

Prior to the pandemic, momentum was growing behind the idea of universities as civically engaged institutions working with their local partners to drive local socio-economic development. As local partners formulate economic recovery plans, many will be looking to universities alongside FE help reskill adults, support local businesses and start-ups, and to drive locally focussed research and innovation. Historical experience suggests that university enrolment is counter-cyclical: as unemployment rises, more young people tend to go to university or stay on for post-graduate studies.

This review is just a starting point. We hope that it helps to illuminate an important question at a critical time for the sector.

One response to “The country really can’t afford for universities to contract

  1. Universities need to link this analysis to the Government’s (DfE) plans for the ‘Establishment of a Higher Education Restructuring Regime in Response to Covid-19’ and the place agenda within the R &D road map from BEIS. Together they presage a new top down steering of HE which needs to be countered by a bottom collaborative working of universities with their communities as is supported by the Civic University Network

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